A popular concept today is that Public Services are terribly under-funded and it is all because of the cuts by those horrible Tories.  Employees of the NHS scream the loudest about how there is a crisis due to under-funding and more needs to be spent, and of course the rich should pay.

Actually that is the worst form of selfishness demanding something should be done and someone else should pay.  That is the normal stance of socialist policy and is the position of Jeremy Corbyn and the latest reincarnation of Old Labour politics.  It is the politics of envy.

I have in the past done a simple experiment of writing on a piece of paper the tax that a low earner pay and then put various increased earnings and asked a number of people what they thought the higher earners should pay in tax, without thinking about tax rates.  Invariably what they put down was way below what should be expected of the tax rates of those earners.

Do ordinary folk understand percentages

Part of the problem is that everyone for decades has referred to wages and tax and shop sales and bargains in percentages, and a huge number of ordinary people have no concept what the numbers mean.

It would be better to go back to a scheme of proportion, like the Church used to do in the form of an annual Tythe, of 1/10th of the product of a farm, an estate, or a business. The vast majority of employed and self-employed people in small towns away from London and other large cities the earnings are between £18,000 and £40,000.

For these people they get a tax-free allowance of £11,000 then pay 1/10th of the next £5,000 of earnings, plus 1/5th of the remainder of earning.  So if the ‘average’ wage is £26,000 they will get £11,000 tax-free then pay £2,500 tax.  If instead they are on maximum Benefits they don’t pay tax, so are better off, but that’s another story.

Tax rates 2015-2016

For the last tax year the rates were, £11,000 tax-free, the next £5,000 at 10%, the next £27,000 at 20%, the next £118,000 at 40%, and beyond that at 45%.

To give some examples of what this means in terms of tax is that if you are on average wage of £26,000 you should pay £2,500 tax.  If you are at the top of this tax band earning £43,000 you should pay £5,900 tax.  At the top of the next band earning £161,000 you should pay (and probably will pay) £53,000 tax.

Beyond that, if you are earning say £1m you should be paying £430,650 tax, but that seems so unreasonable that you would employ an accountant who would likely use any number of avoidance techniques to get the tax down really low.

Now consider the likes of Andy Murray who earned a cool £4,000,000 just for winning the World title from Novak Djokovic at Wimbledon.  I am sure his earnings for 2016 must have exceeded £10m. What about the footballers with their obscene incomes. Then there is Adele who in 2014 earned £27.4m.  Did she pay £12,310,650 in tax?  No way!

Even presenters at the BBC had contracts that made them self-employed so the likes of Jonathan Ross wouldn’t have to pay the required tax on his £4,000,000 earnings via PAYE.

What is the problem?

The truth, and we all know it, is that the really high earners employ legal avoidance schemes within the 16,500 A4 pages of British tax rules to avoid paying even basic rate tax on the bulk of their earnings.  So there is the cause and that leads us to the solution.

Any method of trying to tinker with tax rates within the existing system has almost no effect on the high earners because of the loopholes.  It is also built into the British psych from a very young age with stories such as Robin Hood. That when the rulers demand amounts of tax that are unreasonable you actively fight back and give them less than they would get if they weren’t so unreasonable.

What actually happens is that people give small amounts of tax quite willingly but as it goes up so does the dislike of the tax regime.  There reaches a point where the higher the tax rate the less gets collected.  Such a situation is displayed in the Laffer curve, which socialists always try to denigrate because it is evidence that undermines the claim that you get more tax by putting the rate up.

It has been proved time and again and in particular when Harold Wilson was in power where increased tax rate drove high earners to either move business headquarters (for tax purposes) outside Britain or they up sticks and emigrated.  Tax revenues plummeted and with half the country on strike the energy stations couldn’t get enough coal and the country was reduced to 3-day working weeks.

So what is a solution?

A solution, which I happen to like, is a flat tax.  What this means is everyone, and I mean everyone pays exactly the same proportion of income after allowance, in tax.  No loopholes, no 16,500 pages of A4 rules and exemptions, no need for all those expensive accountants, and everyone can understand it and no what they are likely to pay.

Consider that the tax free allowance is increased to £12,000 and the flat rate is 20%, or 1/5th after allowance.  If you are paid the ‘average’ wage of £26,000 you would have to pay 20% tax on £14,000, which is £2,800. An earner on £43,000 would have to pay 20% tax on £31,000, which is £6,200.

An earner on £161,000 would have to pay tax on £149,000, which is £29,800.  A person earning £1m would be required to pay £197,000 and would likely pay it.  Even Adele might be prepared to pay £5,477,600 on £27.4m of earnings.

Other changes

In addition to changing the tax regime to a flat tax I would also like to recommend that the tax cycle be brought into line with the calendar.  This could mean also a choice end of tax year to be either 31st December or 30th June.  That whichever you choose you have 6 months to submit your return for the end of the previous annual accounting period.

Also, that NI contributions are raised slightly and made to specifically fund the NHS, so that no longer can NHS funding be used as a political weapon by one party against another.  By making it into National Health Insurance and separated from other revenue and public spending, if the people demand more spending they all will have to agree to an increase rate for NHI contributions.  No longer demanding more that someone else has to pay.

 

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